(Repeat for additional subscribers)
Jan 22 (The following statement was released by the rating agency)
Fitch Ratings has affirmed Australia-based Woodside Petroleum Limited's (Woodside)
Long- and Short-Term Foreign-Currency Issuer Default Ratings (IDR) at a€˜BBB+a and 'F2'
respectively. Its foreign currency senior unsecured rating has also been affirmed at 'BBB+'. The
Outlook on the Long-Term IDR is Stable.
KEY RATING DRIVERS
Greater Rating Headroom: Increased cash flow generation, lower capex, and
improved revenue and operational diversity have resulted in increased headroom
within Woodsideas current a€˜BBB+a rating. Fitchas modelling of Woodsideas cash
flows and debt highlights the ability to support sizeable additional growth
capex in a phased manner, and higher dividend payments, as reflected in the
companyas 1H13 results. Any immediate rating upside is, however, limited due to
the constraints imposed by its business risk profile in terms of the size and
scale of its reserves and operations, relative to its a€˜Aa rated oil & gas
upstream peers. In addition, limited organic growth options will require
Woodside to seek growth via new investments which can lead to sizeable debt
funded growth capex in the future.
Increasing LNG profile: Woodsideas rating benefits from an increasing share of
revenues from sales of liquefied natural gas (LNG). This relates to a sizeable
portion of LNG sales on long-term contracts with highly rated utility customers
in North Asia. It also benefits from strong oil-indexed LNG prices, reflecting
the tight demand-supply for gas in the region.
Uncertainty from Price Re-Openers: Woodside has reported that over 80% of its
LNG sales contracts are up for price-renegotiation, with new prices to largely
apply from 1 April 2014. The company has reported an in-principle agreement on
pricing for the majority of these volumes in 4Q13, with price outcomes on trend
with Asian LNG pricing, and its indexation to oil prices. On 14 January 2014,
Woodside announced a three year 1.5 million tonnes per annum LNG sales contract
with Japanas Chubu Electric Power Company, which will commence on 1 April 2014.
Lower Production Growth: 2013 production at 86.9 million barrels of oil
equivalent (mmboe) is higher by approximately 2.5%. Production volumes were,
however, affected by: both planned and unplanned shutdowns at the Pluto LNG
facility; a planned shutdown at the gas processing plant for the north-west
shelf assets; a planned overhaul of the floating, production, storage and
offloading vessel at the Vincent oilfield; and natural field declines at other
mature oil assets. It is lower than the initial 2013 production target range of
88mmboe to 94mmboe.
Measured Growth Capex Approach: Managementas 2013 total capex guidance is lower
at approximately USD1.1bn, down from USD1.9bn in 2012. Woodside has deferred its
approximately USD1bn investment in the Israel-based Leviathan gas development to
1H14, and the Browse LNG development is more likely to commence in late 2015.
Uncommitted growth capex, however, remains sizeable in the medium term, and any
significant debt-funded project announcement will constitute a Rating event.
Limited Growth Prospects: Lower committed capex in 2013, modest success in
exploration activities in Australia and offshore, the deferral of its investment
decision in Leviathan to 1H14, increasing development risks associated with the
Browse LNG project, and expansions at Pluto and Sunrise fields development,
reflect the lack of near-term growth prospects. Woodside is, therefore, likely
to pursue higher dividend payments in the near-term.
Positive: Fitch considers an upgrade unlikely over the medium-term, due to
significant uncommitted growth capex in the pipeline.
Negative: Future developments that may, individually or collectively, lead to a
negative rating action include:
- adjusted net funds from operations (FFO) leverage rising above 2.5x, and FFO
fixed charge coverage falling below 5.0x, both on a sustained basis (expected to
be below 1.5x and around 6.0x respectively for 2013).